List of FRM Core Readings

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FRM Part I
Foundations of Risk Management
René Stulz, “Risk Management Failures: What are They and When Do They Happen?” Fisher College of Business Working Paper Series (Oct. 2008). Fisher College of Business Working Paper No. 2008-03-017.
GARP Code of Conduct
Valuation and Risk Models
“Principles for Sound Stress Testing Practices and Supervision” (Basel Committee on Banking Supervision Publication, May 2009)
FRM Part II
Credit Risk Measurement and Management
Adam Ashcroft and Til Schuermann, “Understanding the Securitization of Subprime Mortgage Credit” , Federal Reserve Bank of New York Staff Reports, no. 318 (March 2008).
Eduardo Canabarro and Darrell Duffie, “Measuring and Marking Counterparty Risk” in ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney Institutional Investor, 2003).

Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability” (July 2008) .
Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research Task Force project” (Basel Committee on Banking Supervision Publication, November 2006).
Operational and Integrated Risk Management
Andrew Kuritzkes, Til Schuermann and Scott M. Weiner. “Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates” , in Brookings-Wharton Papers on Financial Services Robert E. Litan and Richard Herring (eds) (Brookings Institutional Press, Washington, DC: 2003).
Brian Nocco and René Stulz, “Enterprise Risk Management: Theory and Practice” , Journal of Applied Corporate Finance 18, No. 4 (2006): 8-20.
Falko Aue and Michael Kalkbrener, “LDA at Work” Deutsche Bank White Paper, 2007.
Til Schuermann and Andrew Kuritzkes, “What We Know, Don’t Know and Can’t Know About Bank Risk: A View from the Trenches” , (March 2008).
“Principles for Sound Liquidity Risk Management and Supervision” (Basel Committee on Banking Supervision Publication, September 2008).
“Range of practices and issues in economic capital modeling” (Basel Committee on Banking Supervision Publication, March 2009)
Readings for Basel Reference
“Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework-Comprehensive Version” (Basel Committee on Banking Supervision Publication, June 2006).
“Supervisory guidance for assessing banks’ financial instrument fair value practices” (Basel Committee on Banking Supervision Publication, April 2009).
“Guidelines for computing capital for incremental risk in the trading book -final version” (Basel Committee on Banking Supervision Publication, July 2009).
“Revisions to the Basel II market risk framework -final version” (Basel Committee on Banking Supervision Publication, July 2009).
Risk Management and Investment Management
René Stulz, “Hedge Funds: Past, Present and Future.” Fisher College of Business Working Paper No. 2007-03-003; Charles A Dice Center WP No. 2007-3.
Manmohan Singh and James Aitken, “Deleveraging after Lehman — Evidence from Reduced Rehypothecation” , (March 2009).
Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers” , (December 2009).
Current Issues in Financial Markets
Gary Gorton, “The Panic of 2007″ , (August 2008).
Raghuram Rajan, “Has Financial Development Made The World Riskier?” (September 2005).
Senior Supervisory Group, “Observations on Risk Management Practices during the Recent Market Turbulence,” (March 2008).
UBS, “Shareholder Report on UBS?s Write-Downs” , (April 2008).
Martin Hellwig, “Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis” , (November 2008). MPI Collective Goods Preprint, No. 2008/43.
Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” , (April 2008).
Darrell Duffie, “The Failure Mechanics of Dealer Banks” , (June 2009).

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* One stop for Financial Trainings View Details
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* Question Solving Sessions View Details
* Topic Expert Model Learn from the
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* It is no wonder that 53%  of our new students come  from recommendation of old  students

List of FRM Core Readings

Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53% of our new students come from recommendation of old students


FRM Part I
Foundations of Risk Management
René Stulz, “Risk Management Failures: What are They and When Do They Happen?” Fisher College of Business Working Paper Series (Oct. 2008). Fisher College of Business Working Paper No. 2008-03-017.
GARP Code of Conduct
Valuation and Risk Models
“Principles for Sound Stress Testing Practices and Supervision” (Basel Committee on Banking Supervision Publication, May 2009)
FRM Part II
Credit Risk Measurement and Management
Adam Ashcroft and Til Schuermann, “Understanding the Securitization of Subprime Mortgage Credit” , Federal Reserve Bank of New York Staff Reports, no. 318 (March 2008).
Eduardo Canabarro and Darrell Duffie, “Measuring and Marking Counterparty Risk” in ALM of Financial Institutions, ed. Leo Tilman (London: Euromoney Institutional Investor, 2003).

Darrell Duffie, “Innovations in Credit Risk Transfer: Implications for Financial Stability” (July 2008) .
Studies on credit risk concentration: an overview of the issues and a synopsis of the results from the Research Task Force project” (Basel Committee on Banking Supervision Publication, November 2006).
Operational and Integrated Risk Management
Andrew Kuritzkes, Til Schuermann and Scott M. Weiner. “Risk Measurement, Risk Management and Capital Adequacy in Financial Conglomerates” , in Brookings-Wharton Papers on Financial Services Robert E. Litan and Richard Herring (eds) (Brookings Institutional Press, Washington, DC: 2003).
Brian Nocco and René Stulz, “Enterprise Risk Management: Theory and Practice” , Journal of Applied Corporate Finance 18, No. 4 (2006): 8-20.
Falko Aue and Michael Kalkbrener, “LDA at Work” Deutsche Bank White Paper, 2007.
Til Schuermann and Andrew Kuritzkes, “What We Know, Don’t Know and Can’t Know About Bank Risk: A View from the Trenches” , (March 2008).
“Principles for Sound Liquidity Risk Management and Supervision” (Basel Committee on Banking Supervision Publication, September 2008).
“Range of practices and issues in economic capital modeling” (Basel Committee on Banking Supervision Publication, March 2009)
Readings for Basel Reference
“Basel II: International Convergence of Capital Measurement and Capital Standards: A Revised Framework-Comprehensive Version” (Basel Committee on Banking Supervision Publication, June 2006).
“Supervisory guidance for assessing banks’ financial instrument fair value practices” (Basel Committee on Banking Supervision Publication, April 2009).
“Guidelines for computing capital for incremental risk in the trading book -final version” (Basel Committee on Banking Supervision Publication, July 2009).
“Revisions to the Basel II market risk framework -final version” (Basel Committee on Banking Supervision Publication, July 2009).
Risk Management and Investment Management
René Stulz, “Hedge Funds: Past, Present and Future.” Fisher College of Business Working Paper No. 2007-03-003; Charles A Dice Center WP No. 2007-3.
Manmohan Singh and James Aitken, “Deleveraging after Lehman — Evidence from Reduced Rehypothecation” , (March 2009).
Stephen Dimmock and William Gerken, “Finding Bernie Madoff: Detecting Fraud by Investment Managers” , (December 2009).
Current Issues in Financial Markets
Gary Gorton, “The Panic of 2007″ , (August 2008).
Raghuram Rajan, “Has Financial Development Made The World Riskier?” (September 2005).
Senior Supervisory Group, “Observations on Risk Management Practices during the Recent Market Turbulence,” (March 2008).
UBS, “Shareholder Report on UBS?s Write-Downs” , (April 2008).
Martin Hellwig, “Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis” , (November 2008). MPI Collective Goods Preprint, No. 2008/43.
Carmen Reinhart and Kenneth Rogoff, “This Time is Different: A Panoramic View of Eight Centuries of Financial Crises” , (April 2008).
Darrell Duffie, “The Failure Mechanics of Dealer Banks” , (June 2009).

Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53% of our new students come from recommendation of old students

• See more related articles and free preparation stuff at: The Finance Blog - CFA PRM FRM Certifications

PRM^® Exam Trainings

Pristine Careers - Official PRM Course Provider in India

Pristine Careers is the leader in Risk Management Training and is the only provider of training for PRM in India, which is one of the most prestigious Risk Management Certifications in the world. To view more details on Official Course Providers, click here...

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PRM Preparation Support From Pristine Careers

• Can reduce your exam preparation time from 300 hrs to 150hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience

Pristine PRM 120 Hrs Classroom Training

• Can reduce your exam preparation time from 300 hrs to 150 hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience
• Training timings: Saturday 2pm to 7.30pm ; Sunday 10am to 3.30pm
• Fees: Fees Rs 14,950 or USD 495(Including Taxes)

Pristine PRM Comprehensive Web Tutorials

• For Students who want to prepare on their own
• A Comprehensive Study Material including Presentations (for all subjects)
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Complete guidance on "How to prepare for the Exam"
• Fees: Rs. 5000 or USD 150 (Including Taxes), can be adjusted for PRM Classroom Trainings

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Pristine PRM Online Tests & Mock Tests

• For Students who require only Question papers
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Fees: Rs 2,500 or USD 75 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Unique benefits of the preparation support

PRM^® Exam Trainings

Pristine Careers - Official PRM Course Provider in India

Pristine Careers is the leader in Risk Management Training and is the only provider of training for PRM in India, which is one of the most prestigious Risk Management Certifications in the world. To view more details on Official Course Providers, click here...

Click to Download PRM Training Brochure

PRM Preparation Support From Pristine Careers

• Can reduce your exam preparation time from 300 hrs to 150hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience

Pristine PRM 120 Hrs Classroom Training

• Can reduce your exam preparation time from 300 hrs to 150 hrs.
• 14 days of Classroom Trainings for all the subjects
• 30 hrs of Online Tests ( topic wise)- 1000 + questions
• Free online classes for students who register for classroom trainings
• Free online Videos on difficult Topics, Solved Examples & Practice Exercises
• FRM Certified Faculty from IIT/IIM's with relevant experience
• Training timings: Saturday 2pm to 7.30pm ; Sunday 10am to 3.30pm
• Fees: Fees Rs 14,950 or USD 495(Including Taxes)

Pristine PRM Comprehensive Web Tutorials

• For Students who want to prepare on their own
• A Comprehensive Study Material including Presentations (for all subjects)
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Complete guidance on "How to prepare for the Exam"
• Fees: Rs. 5000 or USD 150 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Pristine PRM Online Tests & Mock Tests

• For Students who require only Question papers
• Topic-wise & Subject wise Online Tests ( 1000+ questions) and 2 Mock tests for each subject.
• Fees: Rs 2,500 or USD 75 (Including Taxes), can be adjusted for PRM Classroom Trainings

* 20% discount for a group of 5 or more students

Unique benefits of the preparation support

Effective Asset allocation Techniques

 

Asset allocation is the strategy used in choosing between the various kinds of possible investments, in other words,
the strategy used in choosing in what asset classes such as stocks and bonds one wants to invest.
A large part of financial planning consists of finding an asset allocation that is appropriate for a given person in
terms of their appetite for and ability to shoulder risk.
Examples of asset classes:
* Cash ( money market accounts)
* Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
* Stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
* Real estate
* Foreign currency
* Natural resources
* Precious metals
* Luxury collectibles such as art, fine wine and automobiles
* Real Estate Investment Trusts (REITs)
* International Investments: Foreign or emerging markets
* Life settlements
What are the various Asset-Allocation Strategies ?

Dynamic Asset Allocation
One of the popular allocation schemes is dynamic asset allocation, with which one actively moderates the mix of assets as markets soar and falter. With this strategy one sells assets which are losing value and buys those assets which are gaining. This strategy can diametrically opposite to a constant-weighting scheme.
Strategic Asset Allocation
Strategic asset allocation is a strategy that establishes and sticks to what is called a ‘Base policy mix’. This is a proportional combination of assets based on expected rates for class of asset.
For instance, if the statistical data shows that stock-market has historically returned 20% per year and bonds have returned 10% per year,
a mix of 50% stocks and 50% bonds would be expected to return 15% (= 0.5 * 20 + 0.5 * 10) per year.
Constant-Weighting Asset Allocation
The Strategic asset allocation usually employs a Buy-and-Hold strategy, even though the variations in the actual worth of the assets cause a dramatic change in the initially established policy mix. For this reason, one might prefer to use a constant-weighting approach for asset allocation. In this scheme, one continually rebalances the portfolio.
For instance, if asset A were declining in value, one would purchase more of that asset, and if that asset value increases, then one would sell it.
There are no rigid rules for the frequency of portfolio rebalancing under strategic/constant-weighting asset allocation techniques. Although, a widely accepted norm is that the portfolio must be rebalanced to its original mix when any given allocated asset varies more than 5% in value.
Tactical Asset Allocation
Over the long run, a strategic asset allocation strategy does not allow much flexibility. So, one may find it useful to engage in short-term, tactical deviations from the mix in order to capitalize on the out-of-the-line
investment opportunities. This flexibility imparts a degree of of market timing to one’s portfolio, letting one participate in economic conditions that are more suited to a particular asset class.
So, in some sense, Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved.


Related posts:

1. CFA Topic-wise time allocation chart (8.088) CFA Topic-wise time allocation chart Rahul http://pristinecareers.com/wp-content/uploads/2009/08/folder.gif...
2. Cash Flows Classification (7.683) Cash Flows Classification ...
3. Options Trading Strategies (7.197) The simmering Sino-US relationships, paroxysms in European bond market...
4. VaR Methodology: Shortcomings (6.516) Var Methodology: Shortcomings...Pristine Careers
   More than 250,000 Man hours of Quality Training
   * One stop for Financial Trainings View Details
   * Innovative Content Visualize FRM Diagnostic FRM
   * Question Solving Sessions View Details
   * Topic Expert Model Learn from the
   * Masters of the Trade View Detail
   * It is no wonder that 53%  of our new students come  from recommendation of old  students

Effective Asset allocation Techniques

 

Asset allocation is the strategy used in choosing between the various kinds of possible investments, in other words,
the strategy used in choosing in what asset classes such as stocks and bonds one wants to invest.
A large part of financial planning consists of finding an asset allocation that is appropriate for a given person in
terms of their appetite for and ability to shoulder risk.
Examples of asset classes:
* Cash ( money market accounts)
* Bonds: investment grade or junk (high yield); government or corporate; short-term, intermediate, long-term; domestic, foreign, emerging markets
* Stocks: value or growth; large-cap versus small-cap; domestic, foreign, emerging markets
* Real estate
* Foreign currency
* Natural resources
* Precious metals
* Luxury collectibles such as art, fine wine and automobiles
* Real Estate Investment Trusts (REITs)
* International Investments: Foreign or emerging markets
* Life settlements
What are the various Asset-Allocation Strategies ?

Dynamic Asset Allocation
One of the popular allocation schemes is dynamic asset allocation, with which one actively moderates the mix of assets as markets soar and falter. With this strategy one sells assets which are losing value and buys those assets which are gaining. This strategy can diametrically opposite to a constant-weighting scheme.
Strategic Asset Allocation
Strategic asset allocation is a strategy that establishes and sticks to what is called a ‘Base policy mix’. This is a proportional combination of assets based on expected rates for class of asset.
For instance, if the statistical data shows that stock-market has historically returned 20% per year and bonds have returned 10% per year,
a mix of 50% stocks and 50% bonds would be expected to return 15% (= 0.5 * 20 + 0.5 * 10) per year.
Constant-Weighting Asset Allocation
The Strategic asset allocation usually employs a Buy-and-Hold strategy, even though the variations in the actual worth of the assets cause a dramatic change in the initially established policy mix. For this reason, one might prefer to use a constant-weighting approach for asset allocation. In this scheme, one continually rebalances the portfolio.
For instance, if asset A were declining in value, one would purchase more of that asset, and if that asset value increases, then one would sell it.
There are no rigid rules for the frequency of portfolio rebalancing under strategic/constant-weighting asset allocation techniques. Although, a widely accepted norm is that the portfolio must be rebalanced to its original mix when any given allocated asset varies more than 5% in value.
Tactical Asset Allocation
Over the long run, a strategic asset allocation strategy does not allow much flexibility. So, one may find it useful to engage in short-term, tactical deviations from the mix in order to capitalize on the out-of-the-line
investment opportunities. This flexibility imparts a degree of of market timing to one’s portfolio, letting one participate in economic conditions that are more suited to a particular asset class.
So, in some sense, Tactical asset allocation can be described as a moderately active strategy, since the overall strategic asset mix is returned to when desired short-term profits are achieved.


Related posts:

1. CFA Topic-wise time allocation chart (8.088) CFA Topic-wise time allocation chart Rahul http://pristinecareers.com/wp-content/uploads/2009/08/folder.gif...
2. Cash Flows Classification (7.683) Cash Flows Classification ...
3. Options Trading Strategies (7.197) The simmering Sino-US relationships, paroxysms in European bond market...
4. VaR Methodology: Shortcomings (6.516) Var Methodology: Shortcomings...Pristine Careers
   More than 250,000 Man hours of Quality Training
   * One stop for Financial Trainings View Details
   * Innovative Content Visualize FRM Diagnostic FRM
   * Question Solving Sessions View Details
   * Topic Expert Model Learn from the
   * Masters of the Trade View Detail
   * It is no wonder that 53%  of our new students come  from recommendation of old  students

VaR Methodology: Shortcomings

 

 
What is the most I can lose on this investment? This is a question that almost every investor who has invested or is considering investing in a risky asset asks at some point in time. Value at Risk tries to provide an answer, at least within a reasonable bound.
It gives the likelihood that a portfolio will suffer a large loss in some period of time, or the maximum amount that you are likely to lose with some probability (say, 99%).
It finds this by :
(1) looking at historical data about asset price changes and correlations;
(2) using that data to estimate the probability distributions of those asset prices and correlations; and
(3) using those estimated distributions to calculate the maximum amount you will lose 99% of the time.
But the things are not as simple as that. Real markets don’t go by statistics or rules of probabilty.

You must read this elegant article by Joe Nocera that talks about Var inlight of the sub-prime mortgage crisis. Here is interesting excerpt:
“At the height of the bubble, there was so much money to be made that any firm that pulled back because it was nervous about risk would forsake huge short-term gains and lose out to less cautious rivals. The fact that VaR didn’t measure the possibility of an extreme event was a blessing to the executives. It made black swans [unlikely events] all the easier to ignore. All the incentives — profits, compensation, glory, even job security — went in the direction of taking on more and more risk, even if you half suspected it would end badly. After all, it would end badly for everyone else too. ”
So, here is what’s wrong with the approach:
* Tendency to assume Normal distributions, and thus low probability of ‘extremes’. Reality is that financial returns are more skewed than normality suggests - excessively high and low return days are far more common than would be expected;
* There is often an assumption that history repeats itself, or, the past can predict the future;
* VaR does not describe the losses in the extreme left “tail” of the distribution. (Conditional VaR can help to measure “the expected loss, given the loss exceeds VaR”)
* VaR does not distinguish portfolio liquidity; very different portfolios can have the same VaR i.e. VaR is a static measure of risk and does not capture the dynamics of possible losses if a portfolio were to be unwound;
* Computations can be very complex; there is model risk; precision should not be assumed;
* VaR-constrained traders can game the system i.e. maximize risk subject to keeping VaR steady. The game repeats itself at several levels; and can trigger an avalanche, because everyone misjudges risk in the same way.
Is VAR the Right Methodology? In many situations, VAR may not be the correct risk-management methodology. If we pick a specific loss such as $1 million, VAR allows us to estimate how often we can expect to experience this particular loss. For example, using VAR we might estimate that we will lose at least $1 million on one trading day in 20, on average. During some 20-day periods, we might lose less than $1 million. During other 20-day periods, we might lose more than $1 million on more than one day. VAR tells us how often we can expect to experience particular losses. It doesn’t tell us how large those losses are likely to be.
GARP


Pristine Careers
More than 250,000 Man hours of Quality Training
* One stop for Financial Trainings View Details
* Innovative Content Visualize FRM Diagnostic FRM
* Question Solving Sessions View Details
* Topic Expert Model Learn from the
* Masters of the Trade View Detail
* It is no wonder that 53%  of our new students come  from recommendation of old  students